Greek PM signals referendum backdown

Change of heart - Mr Papandreou has been under intense pressure to reverse his decision to hold the referendum

AFP: Lionel Bonaventure

Greek prime minister George Papandreou says he is willing to drop a proposed referendum on the country's eurozone bailout deal if the conservative opposition agrees to back the package in parliament.

Events in Athens gathered speed a day after Mr Papandreou held a bruising meeting in France with German and French leaders, who told him Athens would not receive a cent more in aid until it voted to meet its commitments under the bailout deal.

"I will be glad even if we don't go to a referendum, which was never a purpose in itself. I'm glad that all this discussion has at least brought a lot of people back to their senses," he said in the text of a speech to his cabinet released to media.

"If the opposition comes to the table to back the bailout, a referendum is not needed."

Eurozone leaders have now released a statement demanding Greece stick to the terms of the original bailout package.

"The euro area stands ready to continue to support Greece, but Greece needs to stick to the agreed package of 26-27 October and in particular to continue with the implementation of the EU/IMF program. This needs to be crystal clear," the top EU officials said in a joint statement on the sidelines of the G20 summit in Cannes.

Both the conservative opposition and some lawmakers within Mr Papandreou's socialist party PASOK demanded some kind of unity government which would push through parliament the 130 billion euro rescue - Greece's last financial lifeline.

Under intense pressure at home and also from the leaders of Germany and France, Mr Papandreou softened his insistence that the Greek people should decide in a referendum on whether to accept the bailout, which also demands yet more austerity.

Mounting rebellion

Greece's conservative opposition leader Antonis Samaras led calls for a new government.

"I'm asking for the formation of a temporary, transitional government with an exclusive mandate to immediately hold elections. And the ratification of the bailout deal from the current parliament," he said in a statement.

Mr Papandreou responded by welcoming the decision by Mr Samaras to drop his previous opposition to the bailout package, which euro zone leaders agreed only last week as they tried to prevent the bloc's debt crisis running out of control.

Mr Papandreou reiterated that Greece's euro zone membership was not in question and that heading to elections immediately would entail a big risk of the country going bankrupt.

Quick guide to Greek debt

Greeks have fiercely opposed the spending cuts, tax rises and job losses which have been the price of financial aid from the IMF and European Union to tackle its huge debt and budget deficit. This has led to a wave of strikes and outbreaks of violence on the streets of Athens.

The idea of a transitional government appeared to be gaining ground within Papandreou's own socialist party PASOK.

A small group of senior PASOK lawmakers are preparing a proposal for a coalition government headed by former European Central Bank vice president Lucas Papademos, a Greek, party sources told Reuters.

Government officials said Mr Papandreou, who also called a vote of confidence in his government for Friday, was not resigning and would await the result of the talks with New Democracy.

"There is no resignation by the prime minister. He will speak, as scheduled, in parliament later on Thursday," one official told Reuters.

Finance minister Evangelos Venizelos broke ranks with Mr Papandreou, coming out against holding the referendum after the meeting with the German and French leaders.

Markets close up

Chaos over Greece's role in the euro zone swept financial markets with early losses in stocks and the euro turning to gains on hopes Athens might ditch its referendum plans.

In Europe, the FTSEurofirst 300 lost 1 per cent initially but later stood close to 1 per cent higher.

Mr Papandreou's bombshell announcement on Monday of the referendum pitched Greece into a political as well as an economic crisis.

About 10 PASOK lawmakers have publicly called for a coalition government to approve the EU bailout deal and proceed to new elections. About 15, including five ministers and deputy ministers, have rejected the referendum idea.

PASOK lawmaker Costas Gitonas said the referendum should not take place. "No, by no means," he told Mega TV. "It's a madhouse."

The spectre of a precipitous Greek default and euro exit hung over a meeting of G20 leaders beginning in Cannes on Thursday.

The French Riviera summit had been meant to focus on reforms of the global monetary system and steps to curb speculative capital flows, but the shock waves from Greece have upended the global talks.